Contractual Duty of Good Faith
Introduction
Australia has not yet committed itself to a definitive principle of good faith in contract law. Unlike the legal systems in Europe and the United States, Australia does not demand an explicit legal prerequisite of good faith to form a contract.[1] Decisions in different jurisdictions have however considered the validity of the values identified in the doctrine of good faith within contract law, such as loyalty, honesty and cooperation. Good faith is valuable because it provides confidence in the formation of contracts between two parties. However there are conflicting views and criticisms of the doctrine of good faith.
The “pragmatic theory of cooperation” [2] underlines the effectiveness of the common law system and emphasizes that there is not a need for a clearly defined doctrine of good faith. Economic theory (the “repugnancy thesis of self interest”) goes further and criticizes the ability the doctrine holds to oppressively “constrains the pursuit of self interest.”[3] Although the doctrine may be valuable, the ramifications and effects that such a doctrine would create, need to be analyzed and evaluated. In addition this essay will explore how established the doctrine of good faith is within Australian contract law.
Although discussion of the implication of a contractual duty of good faith is often sourced to the judgment of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, it is clear that closely related doctrines have formed part of English and Australian law for well over 100 years. Speaking today, it is possible to say that the debate centers not so much on the existence of a duty of good faith in the performance of contractual obligations, but on a number of ancillary, although nonetheless important, questions. These include:
(1) Does the duty arise by implication or as a matter of construction?
(2) If the duty arises by implication, does it arise by implication in fact, implication in
Australia has not yet committed itself to a definitive principle of good faith in contract law. Unlike the legal systems in Europe and the United States, Australia does not demand an explicit legal prerequisite of good faith to form a contract.[1] Decisions in different jurisdictions have however considered the validity of the values identified in the doctrine of good faith within contract law, such as loyalty, honesty and cooperation. Good faith is valuable because it provides confidence in the formation of contracts between two parties. However there are conflicting views and criticisms of the doctrine of good faith.
The “pragmatic theory of cooperation” [2] underlines the effectiveness of the common law system and emphasizes that there is not a need for a clearly defined doctrine of good faith. Economic theory (the “repugnancy thesis of self interest”) goes further and criticizes the ability the doctrine holds to oppressively “constrains the pursuit of self interest.”[3] Although the doctrine may be valuable, the ramifications and effects that such a doctrine would create, need to be analyzed and evaluated. In addition this essay will explore how established the doctrine of good faith is within Australian contract law.
Although discussion of the implication of a contractual duty of good faith is often sourced to the judgment of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, it is clear that closely related doctrines have formed part of English and Australian law for well over 100 years. Speaking today, it is possible to say that the debate centers not so much on the existence of a duty of good faith in the performance of contractual obligations, but on a number of ancillary, although nonetheless important, questions. These include:
(1) Does the duty arise by implication or as a matter of construction?
(2) If the duty arises by implication, does it arise by implication in fact, implication in